Stocks

SAT reserves order in NSE co-location scam case

PALAK SHAH | | Updated on: Dec 01, 2021
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NSE was asked to pay ₹1,000 crore by SEBI as a disgorgement for lapses in its systems

The Securities and Appellate Tribunal (SAT) is all set to announce its final verdict in the NSE co-location or algo-trading scam matter. SAT has heard arguments by Delhi-based broker OPG Securities, former MD and CEO Chitra Ramkrishna and Ravi Narain and reserved its order, sources told BusinessLine .

Markets regulator SEBI had held these people guilty of the lapses at various levels in the working of NSE that led to the co-location servers of the exchange being hacked for preferential access and front-running between 2010 and 2015.

SEBI had concluded its proceedings in the matter in 2019 and all of them challenged the regulator's order at SAT and won stay on it till the final verdict. After a whistleblower wrote to SEBI highlighting the scam, forensic investigations had revealed massive loopholes in NSE's technology infrastructure that was dubiously used for getting access to secret trading data. Ajay Shah, a former consultant to India's Ministry of Finance, too was found to be the brain behind the entire scam. SEBI had invoked fraud charges against him and a company promoted by his sister-in-law Sunita Thomas. Suprabhat Lala, husband of Thomas, has been a high ranking NSE official.

SEBI had considered OPG as the chief player who got preferential access to NSE co-location servers with the help of the exchange insiders and senior officials. SEBI had asked both Narain and Ramkrishna to deposit a part of their salary drawn between financial years 2011-2013, when they were NSE’s MD and CEO, for violation of code of conduct norms that led to the co-location issue at the exchange. Both Narain and Ramkrishna were barred by SEBI from associating with markets or companies in any way for two years. But SAT had stayed all the action against them till it heard the case and came to any conclusion. NSE was asked to pay ₹1,000 crore by SEBI as a disgorgement for lapses in its systems.

Other brokers against SEBI had given its directions include GKN Securities and Way2Wealth Brokers.

Defence argument

Defence lawyers have argued that there was no wrongdoing on the part of NSE since SEBI has categorically said that no fraud was involved. Based on this, the lawyers have said that the penalties imposed by SEBI against NSE and the disgorgement amount are all disproportionate to the charges levelled by the regulator. Taking a cue from this argument, others culprits too have argued that if there was no fraud, there was no wrongdoing on their part. They have also highlighted gaps in the SEBI order.

The present matter was heard through video conference due to Covid-19 pandemic. At this stage, it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the private secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email," the SAT said in its communication on Tuesday evening.

SAT had also granted interim relief to Ajay, Sunita Thomas and Lala against SEBI’s strictures for data breach and other violations at the NSE. All three are related to each other and were in position to access confidential data at NSE, which was then used for preferential access.

SEBI had invoked provisions of the Prevention of Fraudulent Trade Practices (PFUTP) against Shah and barred him from associating with companies or bodies in the capital market for two years. SAT observed in its order that the matter involving Shah and others dated back to 2009 and in 10 years there were no complaints against them and therefore, the balance of convenience was in their favour. SAT also stayed SEBI’s punishment against Infotech Financials, a company promoted by Shah’s sister-in-law Sunita Thomas, and her husband Suprabhat Lala, a top-rung NSE official.

Published on December 01, 2021

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